Bugs “R” Us, LLC v. Autumn Willard McCants

Bugs “R” Us, LLC (“BRU”) appealed the denial of its motion to compel arbitration in an action filed by Autumn McCants (“McCants”) against BRU alleging negligent and/or wanton termite inspection. On January 13, 2015, BRU issued a “Termite Damage Protection Agreement” (the contract) for termite control and protection services. It was undisputed that the termite contract was signed by McCants. The termite contract stated: “The terms and conditions on the reverse side of this agreement including the mandatory arbitration agreement are part of this agreement.” The reverse side of the termite contract contained the following arbitration clause:  

“7. Mandatory Arbitration: Purchaser and Bugs ‘R’ Us agree that any claim, dispute or controversy (‘claim’) between them or against the other or employees, agents, or assigns of the other, and any claim arising from or relating to this agreement or the relationships that result from the agreement, including but not limited to any tort or statutory claim, shall be resolved by neutral binding arbitration by the American Arbitration Association, under the rules of the AAA in effect at the time the claim is filed (‘AAA rules’). ... The decision of the arbitration shall be final and binding resolution of the claim. This arbitration agreement is made pursuant to a transaction involving interstate commerce and shall be governed by the federal arbitration act. 9 U.S.C. sections 1-16. Judgment upon the award may be entered in any court having jurisdiction. Neither party shall sue the other party with respect to any matter in dispute between the parties other than for the enforcement of the arbitration agreement or of the arbitrators’ award. The parties understand that they would have had a right or opportunity to litigate disputes through a court and to have a judge or jury decide their case, but they chose to have any disputes decided through arbitration. 8. Except as limited herein above, Bugs ‘R’ Us and customer understand and agree (1) that each of them is waiving rights to seek remedies in court, including the right to a jury trial ....” 

McCants sued BRU on October 22, 2015, alleging that BRU negligently and/or wantonly inspected the property and that she subsequently discovered a severe infestation of termites. On January 28, 2016, BRU filed a motion to compel arbitration. BRU attached the termite contract, without any attachment, to its motion, and it submitted an affidavit from the owner of BRU, who testified that BRU’s business involves interstate commerce. In her response, McCants noted that the front page of the termite contract contains the following sentence: “This agreement is void without an attached completed graph of the premises.” McCants further noted that the termite contract BRU attached to its motion to compel arbitration did not include a graph of the property. Consequently, she argued, the termite contract was void on its own terms. BRU filed a reply to McCants’s response and attached to its reply an attachment to the termite contract that consisted of a graph of the property and McCants’s signature. 

On appeal, McCants argued that BRU did not meet its burden of proving the existence of an arbitration agreement because the contract was never introduced into evidence in the trial court. Rather, the termite contract was attached to BRU’s motion to compel arbitration but it was not authenticated in accordance with Rule 44, Ala. R. Civ. P. McCants argued that the same was true of the attachment to the termite contract containing a graph of the property that BRU attached to its reply in response to McCants’s opposition to the motion to compel arbitration. Therefore, McCants argued, BRU should not be able to rely on those documents on appeal. However, the record was void of McCants making any objection to the admissibility of the termite contract, so the Court considered it as part of the record. Accordingly, the Supreme Court of Alabama held that BRU met its burden of establishing the existence of an arbitration contract between the parties. Additionally, the Court held that the arbitration provision dictated that the issues McCants raised regarding whether the FAA was applicable to the dispute, whether her claims were subsumed under the arbitration provision, and whether she was bound by the arbitration provision must be submitted to an arbitrator for determination. Accordingly, the trial court’s order denying BRU’s motion to compel arbitration was reversed, and the matter was remanded for further proceedings.

Pharmacists Mutual Insurance Company v. Advanced Specialty Pharmacy LLC et al.

Advanced Specialty Pharmacy LLC, Meds I.V., Inc. (“Meds I.V.”) and other individual defendants were sued by individuals asserting wrongful-death and personal injury claims (collectively “the claimants”). Meds I.V. produced total parenteral nutrition (“TPN”) that was used by hospitals and administered to various patients. TPN is “widely used in healthcare settings to deliver critical nutrients to patients unable to tolerate enteral feeding.” Most ingredients for TPN, including an amino-acid solution, were provided by a manufacturer. However, as a result of a shortage in supply of amino-acid solution, Meds I.V. began preparing its own amino-acid solution. Then, pursuant to a prescription written by a physician, Meds I.V. compounded the solution with other ingredients to produce the TPN. In March of 2011, the CDC was notified of five patients in a hospital in Birmingham, Alabama, who had contracted bloodstream infections as a result of the presence in their bodies of bacteria Serratia marcescens. After an investigation, the CDC determined that the infections were caused by TPN produced by Meds I.V. Later, the CDC discovered at least 19 patients in six Alabama hospitals who had contracted infections as a result of contaminated TPN produced by Meds I.V. between January 2011 and March 2011; of those patients, 17 tested positive for the presence of the bacteria. Nine patients died. Thereafter, the claimants filed wrongful-death actions and personal-injuries claims against Meds I.V.  

In 2010, Pharmacists Mutual issued Meds I.V. two insurance policies: (1) the Business Owners Special Policy (“the business-owners policy”) and (2) the Commercial Umbrella/Excess Liability Coverage Policy (“the excess policy”) (collectively referred to as “the policies”). The policies provided coverage to Meds I.V. from October 28, 2010, until October 28, 2011, during which the events giving rise to the lawsuit occurred. The business-owners policy had a “general aggregate limit” of $3 million, a “products/completed work hazard aggregate limit” of $2 million, and an “each occurrence limit” of $1 million. The excess policy provided additional coverage in conjunction with Pharmacists Mutual’s obligation to provide coverage under the business-owners policy. Under the excess policy, Pharmacists Mutual agreed to pay, “up to [its] limit, all sums in excess of ‘underlying insurances’ [the business owners policy] for which [Meds I.V.] becomes legally obligated to pay as ‘damages’ to which this insurance applies.” The excess policy had an “each occurrence limit” of $1 million, a “general aggregate limit” of $1 million, and a “products/completed work hazard aggregate limit” of $1 million. The business-owners policy provides two main categories of coverage: “Property Coverages” and “Commercial Liability Coverages.” “Commercial Liability Coverages” included “Coverage L -- Bodily Injury and Property Damage Liability.” It was undisputed that Coverage L of the business-owners policy was the only coverage applicable in this case. 

After the claimants filed the lawsuit, Pharmacists Mutual filed an interpleader complaint and submitted $4 million to the circuit court, which it alleged was the policy limits of Meds I.V.’s insurance policies. Pharmacists Mutual requested that the circuit court divide the insurance monies among the claimants. The claimants argued that their claims against Meds I.V. included both professional negligence and products liability. Thus, the claimants alleged that -- in addition to the $4 million general aggregate limits ($3 million under the business-owners policy and $1 million under the excess policy) applicable to the professional-negligence claims -- the products/completed-work-hazard aggregate limits of $2 million under the business-owners policy and $1 million under the excess policy should apply based on the claimants’ products-liability claims. Thus, the claimants sought a total of $7 million, representing “the sum of the two aggregate limits listed on the Declaration Sheets” -- $4 million for the professional-negligence claims and $3 million for the products-liability claims. The claimants ultimately filed a motion for an order of disbursement of the $4 million. The claimants also asked that the circuit court determine the amount of additional insurance coverage, if any, available. Thereafter, the parties filed cross-motions for a summary judgment, and the circuit court entered a summary judgment in favor of the claimants.  

On appeal, the Alabama Supreme Court noted that “in order for the products/completed work hazard aggregate limit to apply to limit Pharmacists Mutual’s liability under Coverage L, there must be: (1) damages (2) based on a bodily injury and (3) the bodily injury must be “included in the ‘products/completed work hazard.’” Further, the Court reasoned, “In order for a bodily injury to be ‘included in the “products/completed work hazard,”’ that injury must be the result of either a ‘products hazard’ or a ‘completed work hazard.’” In order for the claimants’ bodily injuries to be considered “included in the ‘products/completed work hazard,’” their bodily injuries must (1) have arisen “out of ‘products’ after physical possession of the products has been relinquished to others” and (2) have been incurred “away from premises [Meds I.V.] own[s] or rent[s].” Accordingly, if the claimants’ bodily injuries fit within this definition, then the products/completed work hazard aggregate limit applied to limit Pharmacists Mutual’s liability under Coverage L. If not, then the general aggregate limit applied to the liability of Pharmacists Mutual under Coverage L. 

It was undisputed that the claimants suffered bodily injuries. It was also undisputed that the claimants’ bodily injuries were not “included in the ‘products/completed work hazard.’” However, the circuit court determined that the claimants’ bodily injuries were, at the same time, both “included in the ‘products/completed work hazard’ and not “included in the ‘products/completed work hazard.’” Specifically, the circuit court held that “Pharmacists Mutual has admitted that ... the claimants’ ‘bodily injuries’ ... were caused by ‘occurrences’ associated with Meds I.V.’s ‘pharmacy services’ -- specifically, its ‘compounding’ of TPN.” On this basis, the circuit court concluded that the claimants’ bodily injuries were not “included in the ‘products/completed work hazard’” and, thus, that the general aggregate limit applied to Pharmacists Mutual’s liability under Coverage L. The circuit court also held that “there were, at least, three ‘occurrences’ within the meaning of the [policies] that happened during the ‘manufacturing’ of the amino acid solution by Meds I.V.,” and that “those ‘occurrences’ likely contributed to the bodily injuries suffered by the claimants and, in fact, were separate and distinct from the ‘occurrences’ that happened during the ‘compounding’ of the TPN.” The circuit court stated that “[t]hese distinct ‘occurrences’ resulted in Meds I.V. ‘manufacturing’ defective ‘products’ -- specifically, multiple batches of amino acid solution contaminated with Serratia marcescens.” On this basis, the circuit court concluded that the claimants’ bodily injuries -- that is, the same bodily injuries the circuit court concluded were not “included in the ‘products/completed work hazard,’” thus subjecting any damages arising out of those bodily injuries to the general aggregate limit – were “included in the ‘products/completed work hazard,’” and, thus, that the products/completed work hazard aggregate limit applied to limit Pharmacists Mutual’s liability under Coverage L. As a result, the circuit court held that Pharmacists Mutual’s liability for damages under Coverage L was limited by the general aggregate limit of $4 million.  

The Supreme Court noted that the trial court’s holding was inconsistent, and stated: “The circuit court’s conclusion is contrary to the plain language of the business-owners policy. Specifically, the plain language of the business-owners policy is clear that a bodily injury is either ‘included in the “products/completed work hazard,”’ or it is not. A bodily injury cannot simultaneously be and not be ‘included in the “products/completed work hazard.”’” Accordingly, the Supreme Court affirmed the summary judgment insofar as it held that the general aggregate limit applied to limit Pharmacists Mutual’s liability to $4 million. However, the Court reversed the circuit court’s judgment insofar as it held that the products/completed work hazard aggregate limit also applied to expand Pharmacists Mutual’s liability by $3 million to $7 million, and the matter was remanded for further proceedings.